“Based on the accumulation of evidence, governing council decided to increase the policy interest rate, reflecting our view that monetary policy was not sufficiently restrictive to bring supply and demand into balance and return inflation sustainably to the two per cent target,” the Bank of Canada said in a news release.
The decision to raise interest rates comes after speculation among economists and forecasters that ongoing strength in the Canadian economy would push the central bank to hike rates again, though many expected the central bank would wait until the summer before pulling the trigger. However, the economist criticized the central bank for not communicating its intentions clearly ahead of time. Notably, governor Tiff Macklem didn't seem overly concerned about the rise in inflation in April during a news conference last month, he said.
Mendes said although the Bank of Canada's news release says very little about where it plans to take interest rates, he's expecting another rate hike in July. Since then, incoming economic data has continued to surprise forecasters who had anticipated the economy to stall by now. Despite elevated interest rates making borrowing more expensive for consumers and businesses, businesses are still hiring, and consumers continue to spend.